VEDANTA-CAIRN DEAL

[ ] December 7, 2013

Advanced Strategic Management Final Report

12/7/2013

Submitted to:Prof. S. Radhakrishnan

Submitted by:Team Sarthak

12104- SAUMYA RANJAN KHATOI12112- SULGADLE MANJUNATH

12138- GAURAV D. JHUNJHUNUWALA12140- HARISH K.P.

12182- SARTHAK ROHATAGI


Table of ContentsOVERVIEW OF THE DEAL....................................................................................................3

Introduction............................................................................................................................3

Target Company (Cairn India Limited)..................................................................................3

Seller Group (Cairn Energy PLC)..........................................................................................4

Acquirer Group.......................................................................................................................4

NEED FOR THE DEAL............................................................................................................5

From Vedanta’s Perspective...................................................................................................5

From Cairn’s Perspective.......................................................................................................5

ISSUES PERTAINING TO THE DEAL...................................................................................6

From Vedanta’s Side..............................................................................................................6

From Cairn’s Side...................................................................................................................6

Financial Issues Pertaining to the Deal...................................................................................7

PROJECT OVERVIEW.............................................................................................................7

Swot Analysis for Vedanta Resources Limited......................................................................8

1. Diversifying into Oil & Gas Sector.................................................................................9

Lack of experience in oil & gas industry............................................................................9

Applying the VRIO Framework.......................................................................................10

Space Matrix.....................................................................................................................11

2. Put and Call Options.....................................................................................................13

3. Right of Pre-Emption and First Refusal........................................................................13

4. Managing the Royalty Issue..........................................................................................13

5. Managing Goals of Different Stakeholders...................................................................13

Stakeholder Engagement..................................................................................................14

Shareholding pattern of cairn India prior to the deal........................................................17

Shareholding Pattern of Cairn India post to the deal........................................................18

Benefits of the Deal..............................................................................................................19

Key Takeaways of the Deal..................................................................................................19

BIBLIOGRAPHY....................................................................................................................20


OVERVIEW OF THE DEAL

Introduction

Vedanta Resources is in talks with Cairn Energy has a 62.4% stake in Cairn India, to buy a stake in the unit. Cairn India is the fourth-largest oil and Gas Company in India, was valued at $13.6 billion, valuing Cairn Energy’s 62.4% stake at $8.5 billion.

Under the existing takeover norms, any acquirer buying at least 15% stake in a firm needs to make an open offer for another 20% stake. Vedanta is buying between 40 and 51% of Cairn India from Cairn Energy and will offer to buy up to 20% from other shareholders for a total stake of 51 to 60%.

Almost 16 months of protracted wrangling between Cairn Energy, ONGC, and Petroleum Ministry finally ended on 8 Dec.2012 with Vedanta Resources Plc. completing its acquisition of Cairn India. Mines and metals entrepreneur Mr Anil Agarwal's Vedanta Group had acquired a 58.5 per cent stake in Cairn India for $8.67 billion. It had ended a period of uncertainty for Cairn India, which was caught in the crossfire as ONGC and Cairn Energy sorted out the issue of royalty payment for the premium Rajasthan oilfields.

Vedanta Resources Plc. now holds 38.5 per cent in Cairn India, and its subsidiary, Sesa Goa Ltd, holds 20 per cent. Cairn Energy will retain 22 per cent, 10 per cent are with institutions, 2.7 per cent with retail investors and the balance with FIIs. It gives the Vedanta Group its first inroad into the oil and gas sector in India.

Target Company (Cairn India Limited)

Cairn Indian is the largest crude oil producer in India. It is almost 25% of Indian’s total production with 1.3 billion barrels of gross proved and probable reserves and resources as of 31 March 2013 and 205323 barrels of average production in FY2013. Till date Cairn India has opened 3 frontier basins with over 40 discoveries, with 26 in Rajasthan alone. Cairn India has a portfolio of 9 blocks - one block in Rajasthan that contains multiple assets, four on the east coast and two on the west coast of India and one each in Sri Lanka and South Africa. Rajasthan, Ravva and Cambay are the area from where the oil and gas is being currently produced.

In Rajasthan Cairn India is the operator with 70% participating interest. Its joint venture (JV) partner, ONGC, has the remaining 30% participating interest. In Ravva, Cairn is in partnership with Videocon, ONGC and Ravva oil Singapore became the operator of the block in 1996. The PSC is valid until 2019. With 60% participating interest operator of the


block is Cairn India subsidiary. Following the Company’s strategy of building potentially significant international positions, Cairn India subsidiary completed a farm-in agreement with Petro SA in ‘Block 1’ in the Orange Basin and offshore South Africa.

Cairn India is one of the most significant oil and gas exploration and Production Company in South Asia. In India Cairn has an employee strength of1295.

Seller Group (Cairn Energy PLC)

Cairn Energy PLC was incorporated in 1981 in Scotland. Headquartered in Edinburgh, it is a global oil and gas exploration company.

Acquirer Group

Vedanta Resources PLC Vedanta Resources is a globally diversified FTSE 100 and London Stock

exchange listed company. Headquarter is in London, UK. It is the largest mining and non-ferrous metal company in India. It is diversified in natural resources basically in Zinc, Lead, Silver, Copper, Iron Ore, Aluminium, and Power. Vedanta Operated across India, Liberia, Australia, Zambia, Ireland, South Africa, Namibia and Sri Lanka.

In India Vedanta Operated through:• Copper - Sterlite Industries (India) Ltd.• Zinc - Hindustan Zinc Limited.• Aluminium - Bharat Aluminium Company Limited and Vedanta Aluminium

Limited• Iron ore - Sesa Goa Ltd.• Oil & Gas - Cairn India Ltd.• Power- Sterlite Energy Ltd., Madras Aluminium Company (MALCO).

Hindustan Zinc Ltd.

Twin Star Energy Holdings Limited Twin Star is part of the Vedanta group and is an indirect wholly owned

subsidiary of Vedanta Resources. Vedanta Resources, Twin Star will be collectively referred to as the “Acquirer Group” hereinafter.


NEED FOR THE DEAL

From Vedanta’s Perspective

Vedanta’s strategy is to create a world-class metals and mining company, using four approaches: asset optimization and cost reduction, capacity expansion, consolidating its holdings and seeking acquisitions. It seeks opportunities where it can leverage its transactional, operational skills and experience and project execution. And so it will seek complementary businesses too, such as coal mining and oil and gas. Vedanta Resources thus wanted to buy a stake in Cairn India to diversify into Oil & Gas from its core business of developing mines and smelters. It believes it can earn a better return on investment than the market rate of return in the long term.

The mining major BHP Billiton Ltd.’s similar diversification proved to be good for the company as its petroleum exploration business contributed 17% of its half-year’s revenue and 27% of its segment profit.

Utilization of captive energy sources can prove to be a cost advantage. When the mining division’s profits decline due to higher energy prices, the exploration division’s profits will go up. Thus, it could act as hedge for Vedanta Resources.

Cairn India is Country’s fourth largest oil and Gas Company, which has little net debt and positive cash flows. And so, it was considered to be a good target for the deal.

From Cairn’s Perspective

Vedanta Resources have an excellent track record of inorganic growth of assets acquired in India. So, it was going to be a healthy deal for Cairn India. Also, its management and business was going to be the same.

Cairn India would be able to utilize Vedanta’s core skills of project management and development of reserves and resources. Cairn India, currently, produces 125,000 barrels of crude oil per day (6.25 million tonnes a year) from Mangala oilfield in Rajasthan and has stated that output can rise to 150,000 bpd (7.5 million tonnes).


ISSUES PERTAINING TO THE DEAL

From Vedanta’s Side

Continuing with the strategy to create a world class metal and mining company Vedanta’s focus was on one of the most significant oil and gas exploration and Production Company in South Asia i.e. Cairn India.

Before the deal Vedanta bought 11% of Cairn India from Patronas, Malaysia’s natural oil corporation. Patronas had a 12.3% stake in Cairn India before transaction, then Vedanta bought 11% stake for $1.5 bn. at Rs 331 per share. The main intention of Vedanta by this deal was to get exposure in Indian Oil Reserves.

Vedanta Resources Plc. plans to holds 38.5% in Cairn India, and its subsidiary, Sesa Goa Ltd should holds 20%.

One major issue regarding the delay the deal was due to a dispute over royalty payments by state-run Oil and Natural Gas Corporation that has a 30% holding in the Cairn India operated Rajasthan fields in western India but pays 100% of the royalties. The oil ministry has been pushing to share the royalty burden between ONGC and Cairn India. Due to any changes in structure of royalty payments valuations would be impacted that may jeopardize the deal. Both Vedanta and Cairn was against this move.

Later under the new terms, Cairn India will bear 70% of the royalty payments, expected to amount to about 15% of revenues, and has agreed to withdraw arbitration over a tax dispute.

Vedanta Group will acquire its stake in two tranches: the first 10% sale took place in July, 2011, while the second 30% was contingent on ONGC approval.

From Cairn’s Side

The main purpose behind the deal with respect to Cairns India is that the CEO of Cairn, Sir Bill Gammell would receive a minimum of £ 2million from his 0.2 Percent stake in the explorer if the pay-out were as low as £ 1billion, and this could take the form of a special dividend for the shareholders or another more tax-efficient payment for the company.

Cairn Energy selling part of its stake in Cairn India makes sense as it could monetise part of the value in India now and free up cash for Greenland exploration and perhaps a special dividend. Cairn Energy will retain 22%, retaining a stake in Cairn India would also enable Cairn to benefit from any further exploration upside.

Cairn plans to use the remaining cash from the sale to fund its ambitious deep-water drilling programme in the technically difficult region of Greenland. The deal would


also be beneficial for the stakeholders as most of the investors expect the amount of money given back to them to run into multiple billions.

Financial Issues Pertaining to the Deal

Vedanta is planning to buy between 40% and 51% of Cairn India from Cairn Energy, which owns a 62.4 % stake, and will offer to buy up to 20% from other shareholders for a total stake of 51% to 60%.

Vedanta would pay Rs.405 per share—including non-compete fees of Rs.50 per share—to Cairn Energy Plc. to buy up to 40% of Cairn’s Indian arm, the open offer price for an additional 20% has been fixed at Rs.355.

In exchange for the non-compete fee, Cairn Energy will not enter into any new business opportunities in regions where Cairn India is operational, including India and some neighbouring countries, for three years.

Vedanta Resources Plc. agreed a $6 billion financing deal with a consortium of banks (Barclays Capital, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, Morgan Stanley, Citi, Standard Chartered and Credit Suisse ) to finance the acquisition of a majority stake in the Indian unit of Cairn Energy.

Credit rating agencies have downgraded Vedanta as the firm plans to borrow to finance the acquisition.

• Fitch Ratings downgraded Vedanta’s rating from ‘BBB-’ to ‘BB+’• Rating of Vedanta was placed under review for a downgrade by Moody’s

Investors Service.• Standard and Poor’s (S&P) has placed Vedanta’s ‘BB’ long-term corporate

credit rating and “the rating of all the company’s issues on CreditWatch with negative implications”

ONGC holds a 30% stake in Rajasthan block, but pays the royalty on the entire quantum of production. Cairn believes on all crude oil produced from the Rajasthan block the liability of paying cess of Rs 2,500 per tonne also rests on ONGC.

PROJECT OVERVIEW


Project would concentrate on devising Strategies for Vedanta if everything goes against it. The following issues are there which need to resolved.

1. Diversification into Oil & Gas Sector 2. Put and Call options3. Right of Pre-emption and First Refusal4. Managing the Royalty Payment Issues5. Managing goals of different stakeholders

Before Making the Strategies for Vedanta various problems we have done SWOT Analysis for Vedanta

Swot Analysis for Vedanta Resources Limited

Strengths

Vedanta is the largest company in India in mining and non-ferrous metals sector and also has mining operations in Australia and Zambia.

Excellent Product Portfolio: Copper, iron ore, aluminium, pig iron, lead, gold, zinc, metallurgical coke

Stated strength of asset optimization and cost reduction skills It has an ability to operate in sectors where politics and policy have a greater impact

on the businesses. In recent years, the Indian government’s role in the oil and gas sector has been a

worry for exploration companies. Have many Subsidiaries

Weakness

Vedanta shares were down 4.6% as analysts questioned its ability to afford another big acquisition.

Profit (Decrease) US$ 1.229 billion (2012) Funding is the main concern. Vedanta has spent nearly half its $17 billion (around

Rs79, 200 Crore) capital investment plan, as of fiscal 2010. It plans to spend nearly $14 billion by fiscal 2013 that include the minority buyouts, pending capital expenditure and debt repayment. Cash on hand is $7.2 billion, fresh debt will provide $4.9 billion and the rest will come from on-going cash flows.

Vedanta is indeed cash-rich, but it has little to spare.


Opportunities

Such a deal by Vedanta, controlled by chairman Anil Agarwal, would be the diversified miner’s first move into oil and gas.

Utilizing captive energy resources can give a cost advantage. Even if operational or regulatory obstacles prevent captive usage, it could act as a hedge. When the mining division’s profits decline due to higher energy prices, the exploration division’s profits will go up. In a recession, however, the hedge will turn into a drag.

Why Cairn? Cairn is a good target, with a successful exploration business that is being scaled up, very little net debt and positive cash flows.

Threats

BHP Billiton, Brazil’s Vale SA, Rio Tinto Group is the large mining companies and has significant interest in oil. They can also think of investing in Cairn.

Regulatory hurdles could delay Vedanta Resources’ purchase of a stake of up to $9.6 billion in Cairn India, but the buyer and analysts see them as unlikely to derail the deal.

Approval from ONGC a state run explorer, which has a 30% stake in Cairn India’s Rajasthan oil block called RJ-ON-90/1, is also crucial for any change of ownership at British firm’s Indian unit.

1. Diversifying into Oil & Gas Sector

During the year, they successfully completed the acquisition of a majority interest in Cairn India Limited, acquiring a 59% stake for a consideration of US$8.68 billion. Primarily based in Rajasthan, where they already have a strong presence,

Cairn is a unique exploration and production platform, which enhances Vedanta’s growth profile by diversification into Oil & Gas Sector. Cairn (India) has the second largest reserves in India among private sector oil companies, a lowest docile cost position and a proven management team.

Cairn (India) world-class resource base includes interests in nine blocks in India and one in Sri Lanka, out of which three are operating blocks. The ten blocks are located strategically by focusing into three areas – Rajasthan has one block, West coast of India has three blocks are in place , five blocks are located on the east coast of India and one block is located in Sri Lanka.

The block in Rajasthan is India’s largest oil discovery in the last 20 years; with over 7.4 billion barrels of oil Reserves and Resources in place


Lack of experience in oil & gas industry

Vedanta group can use four components like asset optimization and cost reduction; capacity expansion; consolidating its holdings; and acquisitions. Evidently, by entering into oil and gas sector, it seeks to leverage skills & learn an experience for further expansion or diversification.

This move could be to compensate for the mining industry. Owning captive energy

resources such as oil and natural gas might offer cost advantage. The logic could be to offer

compensation to mining profits by driving profits from exploration sector.

Vedanta group wants to check its ability in sectors where politics and policy impact business to. Other mining companies are reaping benefits from petroleum exploration business nationally & internationally.

Applying the VRIO Framework

The Question of Value:-


Does the resource result in an increase in revenues for the Vedanta or a decrease in Vedanta costs, or some combination of the both? (Cairn’s reputation allows Vedanta to Extending Portfolio into Oil & Gas)

The Question of Rarity:-

if a resource is not rare, then perfect competition dynamics are likely to be ob-served (i.e., no competitive advantage, no above normal profits)

if a resource must be rare enough that perfect competition has not set in thus, there may be other firms that possess the resource, but still only enough that

there is scarcity (several oil & gas industries sell oil , but the oil are still scarce—look at prices)

The Question of Imitability:-

The competitive advantages of rare resources are temporary and rare resources can be sustained only if competitors face a cost or other in disadvantage imitating the resource.

Usually Intangible resources are more costly to imitate than tangible resources(Vedanta business model can be imitated but it’s reputation cannot be)

Here firm’s resources are:

Valuable, Rare and Costly to Imitate---> Sustained Competitive Advantage

Space Matrix

We have used Space Matrix to know about the strategy of Vedanta. A company needs to analyse its capabilities in various fields and then select a strategy move with which it to adapt to the changing market conditions. The factors which are considered in SPACE Matrix are financial strength (FS), industry strength (IS), environment strength (ES) and competitive advantage (CA).

Internal Strategic Dimensions

S. No. Financial Strength (FS) Rating1 Return on capital employed of 17.5% 42 Free cash flow up 39.5% at US $ 3.5 Billion 63 Revenue up 7% to US $ 15 billion 54 EBIDTA up 21.4% to 32.6% 5

Total 20


Average 5

S. No. Competitive Advantage (CA) Rating1 High quality assets -2.02 Low cost of production -1.03 Excellent product portfolio -3.04 Skill and expertise -2.0

Total -8.0Average -2.0

External Strategic Dimensions

S. No. Environmental Stability (ES) Rating1 Technological Know How at the Firm Level -1.02 Competitive Pressure -23 Barriers to entry into market -2.04 Intervention of the Government -5

Total -10.0Average -2.5

S. No. Industry Strength (IS) Rating1 Profit Potential 52 Growth rate 3

Total 8Average 4

Ratings are given as follows:

Ranging from + 1 (worst) to + 6 (Best) to each of the factors that make up the FS and IS dimensions.

Ranging from - 1 (Best) to – 6 (worst) to each of the factors that make up the ES and CA dimensions.

Directional vector coordinates: X-axis: CA rating+ IS rating = (-2) + 4 = 2 Y-axis: FS rating + ES rating = 5 + (-2.5)= 2.5

Financial Strength (FS)


Conservative Aggressive

(2, 2.5)

Competitive Advantage (CA) Industry Strength (IS)

Defensive Competitive

Environment Stability (ES)

The directional vector falls in the Aggressive quadrant (Upper-Right quadrant). Hence, Vedanta Resources is in excellent position to diversify into Oil & Gas Sector.

2. Put and Call Options

Vedanta & Cairn had entered into put and call arrangements in relation to a part of the equity shares of Cairn India that may be retained by the cairn Group. The put and call obligations related to a number of the shares of Cairn India equal to the shortfall between the number of Sale Shares actually acquired by the Acquirers and 51% of the Voting Capital, subject to a maximum of 10% of Voting Capital of Cairn India. After July 31, 2012 the first of put and call options was exercisable for duration of 6 months and the other after July 31, 2013 for duration of 6 months. The exercising price is Rs. 405 per share in both the cases.

3. Right of Pre-Emption and First Refusal

In addition to the options mentioned above, if the cairn group proposed to transfer any of the shares that they would continue to hold after the period of 6 months from closing, the Vedanta could exercise a ‘right of first refusal’ in respect to those shares at INR 405 per share.


4. Managing the Royalty Issue

Cairn has also a pending dispute with ONGC on the payment of royalty. It has declined to share the royalty payments to the government as it was paid by ONGC since beginning as per the contract. Indian Government has agreed to restrict ONGC’s royalty payment in proportion to their holding and not for the entire block. This issue has been continuing since five or six years. In Barmer Block, ONGC paid 100 per cent royalty and tax on the entire crude production.

5. Managing Goals of Different Stakeholders

The Vedanta Group is a diversified natural resources group with its primary operations in India. The Board believes that the acquisition of a controlling stake in Cairn India will add to the Vedanta Group an additional high quality asset in an attractive natural resources segment.

The Directors of Vedanta believes that India has significant oil and gas resource potential which has historically been under-exploited. Cairn represents a significant oil & gas exploration and production platform and as at 1 January 2010 had the fourth largest oil and gas reserves in India among private sector oil companies, a entire management team and low cost production. Cairn has been running since establishment as an independent company and is completely self - sufficient in both exploration and production capabilities. The Board believes that Cairn will bring into the Vedanta Group the complementary skills of an extractive industry companies, with large-scale project and exploration capabilities.

The Board of Directors believes that by acquiring the controlling stake in Cairn will increase Vedanta’s existing significant presence in the state of Rajasthan (India). Vedanta is having zinc operations located in Rajasthan and Board of Directors believes that Vedanta is one of the largest tax payers and one of the largest private employers. Principal production asset of Cairn India is having 70 % stake in the Rajasthan oil flourish project.

The flourish has been largely de-risked with the first phase of development now complete and a 591 km heated pipeline in place. As at 15 September 2010, Cairn was producing approximately 126,000 barrels of crude oil per day from its Rajasthan field.

The Board of Directors believes that existing level of production may be increased by more than double whilst extending the production plateau and increasing the resources base. Oil and gas in excess of 6.4 billion barrels are in place in Rajasthan.

The Board believes that the deal will be beneficial to Vedanta because:

The deal will enable Vedanta to be a leading player in the Indian oil and gas sector with the potential to help meet the growing energy needs of one of the world’s fastest growing economies.


Vedanta will be able to apply its core skills of project management and development of reserves and resources in conjunction with the technical knowledge and capabilities of Cairn India through this deal.

Cairn shares Vedanta’s operating policy of using world class operating techniques to be a safe low cost producer with strong cash flow generation.

Cairn will further enhance Vedanta’s position as one of the leading companies in the state of Rajasthan.

Cairn has a large and geologically diverse base of reserves and resources with substantial exploration upside.

The deal will enhance and diversify Vedanta’s exposure to the natural resources which fuel the Indian growth story and

Stakeholder Engagement

An important part of the Vedanta Sustainability Framework is the supporting Technical Standards and Group social policy that provide structure to the way we plan and manage our stakeholder engagement. These standards require all operations to identify stakeholders and determine engagement plans, including recording and responding to stakeholder enquiries and grievances. Their stakeholder engagement Technical Standard is aligned with international best practice and equips their subsidiaries with a consistent approach to the way they engage. At Corporate level, as part of their continual engagement with those interested in their business, they are committed to effectively responding to stakeholder feedback. Lot of Effort is made by the business to ensure that multiple channels are used to maintain contact.

An analysis of enquires received shows that 455 emails have been received between 1 April 2012 and 31 March 2013 as shown above, only 29 of these emails requested information about the company while 102 were sent with the goal of finding employment. In addition to emails received at this email address, all matters related to our sustainable development initiatives received by departments such as the Vedanta Corporate Communications and Investor Relations teams are forwarded to the Chief Sustainability Officer or to Vedanta website.

All emails are reviewed and an appropriate response is made. Recording of issues have been done that contribute to Vedanta continual monitoring and understanding of stakeholders’ interests.

Broader Stakeholder Engagement :-

Vedanta and their subsidiary companies have proactive shareholder engagement. In the course of the year, they have proactively met with stakeholder groups including civil society organisations, media and industry trade guilds, to


increase awareness about the Group, explain their position, listen to the views of others and answer any queries that they might have. They use numerous channels of communication which include one-on-one and large format meetings and briefings, and online and print communications. They also invest considerable resources in creating and publishing in-house journals from most of the operating units to engage with employees, their wider industry and communities and host governments. Hindustan Zinc Limited, BALCO, Scorpion Zinc, Konkola Copper Mines (KCM), Lisheen Mines, Sterlite Copper and Black Mountain Mine (BMM) all produce in-house journals. They also recognise the growing value of online and social media in engaging with various stakeholders. They have an active presence on various social media (YouTube, Facebook, Twitter, Flicker, Pinterest, blogs) to increase awareness about their business , share latest news and respond to any queries or comments that are posted. They were pleased to be ranked 6th among FTSE 100 companies in a study conducted by Sociability, United Kingdom and Public Relations Consultants Association, UK. This independent study benchmarks corporate social media engagement using social media networks including YouTube, Twitter and Facebook. Vedanta has also been ranked number one among all FTSE 100 companies on use of YouTube to engage with its stakeholders.

Disclosure Plan:-

• The Stakeholder Engagement Plan (SEP) is part of integrated ESMP (Environmental and Social Management Plan) and the SEP encompasses the various communities or groups of people who could be impacted by the business.

• The major goals of the plan include: - • The identification, analysis and engagement of stakeholders in all stages of the

Project lifecycle in a proactive manner • Identified stakeholders categorizes on the basis of their engagement with the

company • Representatives of different groups of stakeholders should be identified.• Stakeholders who are having the risk of being affected by the operations of

the business with special emphasis on vulnerable communities should be identified

• Engagement mechanisms for each stakeholder group should be devised. • Ensuring that the required systems are in place to report and record any

question, complaint, grievance or incident raised by the stakeholders in general and the local community in particular

Strategy for the Combined Group :-


The Board intends to continue to focus on delivering shareholder value through the continued development of the Group’s portfolio. The Group intends to create an Indian natural resources champion with a comprehensive footprint across India’s resources sector. The intention is to utilise the Group’s skills to accelerate the exploration, development and production of Rajasthan’s oil and gas assets.

Building Strong Relationships

They engage with a large number of different stakeholders on a regular basis through their human resources, government relations departments, investor’s relations, and community relations. Their engagement process uses a three-pronged approach

• Keeping the stakeholders informed, • Engaging with them • Forging partnerships to address their needs and concerns.

Shareholding pattern of cairn India prior to the deal

Malaysia

UK

Cairn UK Parent

Petronas100%

Cairn UK Sub

14.94%

22.7 %

Others

Cairn India

62.7 %India

Others


`

Shareholding Pattern of Cairn India post to the deal

Vedanta Resources

UK

Cairn UK Parent

Subsidiary

Indirect 100% subsidiary

100%

Mauritius Twin

StarCairn UK Sub

Sesa Goa18.45%

38.83% 21.84

%

INDIA

100%

1.72%

Cairn India

Sesa Resources19.16%

Others


Vedanta wants to buy a controlling stake in India's fourth largest Oil and Gas Company to capitalize on rising demand for energy, economic growth and an expanding population.

The deal needs Indian Government approval as ONGC is a partner of Cairn India's in its three producing assets that includes the biggest on land oilfield in Rajasthan's Barmer district. Right of First Refusal might be offered by Cairn energy to ONGC if it wants to sell its stake in Cairn India. ONGC can either consider acquiring the stock or agreeing to somebody outsider buying who has an experience in the sector.

According to norms, a rival offer has to be made within 21 days of the open offer being issued. ONGC fails to make an in due date. If ONGC did not make a rival offer consciously, Vedanta will certainly take into account, the views of ONGC if any but ONGC didn’t raise any concern.


Benefits of the Deal

Following are some of the Cairn India’s business model key aspects, which Vedanta group might have thought it can benefit from are given below:-

Its position in India: Cairn India has huge experience in exploring, discovering, op-erating production assets in India for many years with ONGC, Government of India and state governments, regulators and key industry participants.

Development and operational expertise : Cairn India has a proven track record of de-veloping resources with low cost in oil & gas sector.

Solidifies Vedanta’s position: Vedanta group intensifies its position in Rajasthan in private core sector by getting into energy portfolio along with Zinc.

Key Takeaways of the Deal

Cairn Energy is a significant shareholder in Cairn India, with 10.6-21.6% stake. Further, Vedanta would have a pre-emptive right over any subsequent sale by Cairn Energy of its remaining stake in Cairn India, hence such disposal would result in the recipient of the shares holding >20% of the issued share capital of Cairn India.

Cairn Energy and Vedanta have also entered into reciprocal put and call arrangements. Put and call options were written to enable Vedanta and Cairn Energy to ensure that minimum of 50% Of Cairn India is acquired from Cairn Energy at Rs405/share.

Cairn energy (including cairn India) wants to focus more on its core competency which is exploration apart from keeping more profitable units alive. Cairn Energy’s strategy is to add value through exploration. Most of the sale proceeds are return to shareholders as planned by Cairn energy and remaining part of the cash use for exploration elsewhere and appraisal programs for the ongoing activities.

To maintain balance in its portfolio, Cairn Energy doesn’t want to sell the entire stake. This was to protect itself from Greenland exploration portfolio which is a high risk-return game.

Though the government approvals are routine, it could be hindrance many a times as government structures & policies keep changing.

Vedanta is only going to provide guidance with the present management of Cairn India continuing in the board. Further, it stated it has no intention to de-list Cairn India.


Depending on the estimated oil and gas in place resources, Vedanta is aiming to produce more than the existing capacity in Rajasthan asset. However, Vedanta doesn’t have any prior oil & gas experience to claim to produce better than the current production.

BIBLIOGRAPHY

Retrieved from vedanta: http://en.wikipedia.org/wiki/Vedanta_Resources

Retrieved from cairn: http://en.wikipedia.org/wiki/Cairn_India

Retrieved from annual report: http://ar2013.vedantaresources.com/PDF/Full%20PDF.pdf

Retrieved from space: http://www.maxi-pedia.com/SPACE+matrix+model+strategic+management+method

Retrieved from vr: http://www.vedantaresources.com/

(2010, 10 22). Retrieved from ET: http://articles.economictimes.indiatimes.com/2010-10-22/news/27597326_1_cairn-vedanta-rajasthan-block-uk-s-cairn-energy-plc

(2011, 09 28). Retrieved from ie: http://www.indianexpress.com/news/ongc-oks-cairnvedanta-deal/852919/

(2012, 12 8). Retrieved from hindu: http://www.thehindubusinessline.com/companies/article2698004.ece

(2012, 12 9). Retrieved from http://www.business-standard.com/article/companies/vedanta-completes-deal-with-cairn-india-111120900071_1.html

Education

VEDANTA-CAIRN DEAL